'To Safeguard Homebuyers' Interests' : Supreme Court Issues Directions For CoC In Insolvency Cases Against Builders
The Supreme Court on Thursday (January 15) issued a set of directions regarding the functioning of the Committee of Creditors (CoC) under the Insolvency & Bankruptcy Code, noting that while the commercial wisdom of the CoC is paramount, such power must be exercised with responsibility, transparency and proper application of mind, particularly in real estate insolvencies where...
The Supreme Court on Thursday (January 15) issued a set of directions regarding the functioning of the Committee of Creditors (CoC) under the Insolvency & Bankruptcy Code, noting that while the commercial wisdom of the CoC is paramount, such power must be exercised with responsibility, transparency and proper application of mind, particularly in real estate insolvencies where homebuyers' interests are deeply involved.
“While the commercial wisdom of the Committee of Creditors is paramount and is not ordinarily amenable to judicial review, the width of powers vested in the CoC carries with it a corresponding duty of responsibility. Any extraordinary or non-routine decision taken by the CoC must, therefore, be supported by cogent reasons duly recorded in writing.”, observed a bench of Justices JB Pardiwala and R Mahadevan, while issuing following directions with a view to advancing transparency, ensuring accountability, and safeguarding the interests of homebuyers:
"i) The Information Memorandum shall mandatorily disclose comprehensive and complete details of all allottees; and
ii) Where the Committee of Creditors, upon due consideration, finds it not viable to approve handover of possession in terms of Regulation 4E of the CIRP Regulations, it shall mandatorily record cogent and specific reasons in writing for such decision.
iii) Any recommendation for liquidation by the Committee of Creditors shall be accompanied by a reasoned justification recorded in writing, evidencing proper application of mind and due consideration of all viable alternatives, in consonance with the objective of the Code."
Background
The bench issued the aforesaid directions, while hearing a case, in which the Appellant-a homebuyers' association- approached the Supreme Court against the NCLAT decision dismissing its plea to intervene in the Corporate Insolvency Resolution Process (“CIRP”) against the Respondent- Corporate Debtor- at the pre-admission stage.
The Court upheld the NCLAT's decision to dismiss Appellant's plea for intervention at the pre-admission stage, as the plea for initiating the CIRP can only be filed by the individual flat owners as a financial creditor under Section 7 of the IBC. A homebuyer association, which don't have an independent status as a financial creditor, cannot seek intervention at the pre-admission stage, but can explore other options at the post-admission stage under the Code.
In this backdrop, the Court observed that even if an intervention application by a homebuyers' association is rejected at the pre-admission stage, the association is not left remediless and may pursue appropriate remedies before the CoC in accordance with the Code. The Court clarified that although the commercial wisdom of the CoC is immune from judicial scrutiny, any decision of the CoC that affects the rights and interests of homebuyers must be supported by cogent reasons and must emerge from a fair and transparent decision-making process.
Significance of the aforesaid directions
The Court's direction that the Information Memorandum must contain complete details of all allottees was directly linked to the facts of the case, where nearly two-thirds of the flats had already been sold. The Court noted that without a clear picture of the number and identity of homebuyers, the project risked being treated as a mere distressed commercial asset rather than a residential development involving real end-users.
The direction ensures that resolution applicants and the CoC cannot evaluate viability or liquidation without accounting for the scale of homebuyer interests and the actual completion obligations.
The Court's further direction is that if the CoC rejects any request by homebuyers for possession or registration under Regulation 4E, it must record cogent reasons in writing.
An unreasoned refusal by the CoC could effectively deprive buyers of ready or near-ready homes while not explaining why completion or handover was commercially or legally unviable. The Court therefore insisted on transparency and accountability in decisions that directly affect the fate of occupied or near-occupied housing projects.
The most far-reaching direction required the CoC to provide a written, reasoned justification if it recommends liquidation, showing that all viable revival options were duly considered.
The Court emphasized that with construction almost complete and hundreds of families awaiting homes, liquidation would not merely dissolve a corporate entity but potentially convert a livable housing project into distressed land and unfinished structures. It said that the CoC must demonstrate why alternatives like project completion, third-party takeover, or structured resolution are not feasible before choosing liquidation.
Headnote
Insolvency and Bankruptcy Code, 2016 – Section 7 – Admission of CIRP – Mandatory Nature – Discretion of Adjudicating Authority – Supreme Court issued a set of directions regarding the functioning of the Committee of Creditors (CoC) under the Insolvency & Bankruptcy Code, noting that while the commercial wisdom of the CoC is paramount, such power must be exercised with responsibility, transparency and proper application of mind, particularly in real estate insolvencies where homebuyers' interests are deeply involved - Held, the inquiry under Section 7(5)(a) is confined strictly to the determination of debt and default - Once the Adjudicating Authority is satisfied that a financial debt exists and a default has occurred, it must admit the application unless it is incomplete - Considerations such as project viability, business status (going concern), stage of completion, or perceived prejudice to homebuyers are extraneous and irrelevant at the admission stage. [Para 12]
Insolvency and Bankruptcy Code, 2016 – Section 7 – Locus Standi of Homebuyer Societies – Held, a society or Resident Welfare Association (RWA) does not possess locus standi to intervene in Section 7 proceedings at the pre-admission stage - At this stage, proceedings are in personam between the applicant creditor and the corporate debtor - While individual allottees are "financial creditors" under the Explanation to Section 5(8)(f), this status does not automatically extend to a society unless it is a creditor in its own right or a statutorily recognized authorized representative. [Para 13]
Insolvency and Bankruptcy Code, 2016 – Object of Code – Resolution vs. Recovery – The fundamental object of the IBC is resolution and revival, not mere recovery - the concept of revival does not exclude recovery altogether; it only excludes the abuse of insolvency as a pressure tactic - Alternative remedies under SARFAESI or RERA remain available, but the presence of such recovery proceedings does not bar the initiation of CIRP under Section 7. [Para 10, 12]
Directions – To ensure transparency and safeguard homebuyer interests during CIRP - issued mandatory directions: (i) The Information Memorandum must disclose comprehensive details of all allottees; (ii) The CoC must record specific written reasons if they find it not viable to approve handover of possession under Regulation 4E; and (iii) Any recommendation for liquidation must be accompanied by a reasoned justification. [Relied on Innoventive Industries Ltd. v. ICICI Bank (2018) 1 SCC 407; Pioneer Urban Land and Infrastructure Ltd v. Union of India (2019) 8 SCC 416; GLAS Trust Co. LLC v. BYJU Raveendran (2025) 3 SCC 625; Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC 17; Para 15]
Cause Title: ELEGNA CO-OP. HOUSING AND COMMERCIAL SOCIETY LTD. VERSUS EDELWEISS ASSET RECONSTRUCTION (and connected case)
Citation : 2026 LiveLaw (SC) 51